2019 (9) TMI 151 - AT - Income Tax

Reopening of assessment u/s 147 - notice u/s.148 was not served on the assessee - undisclosed capital gains - HELD THAT - As relevant assessment year before us is AY.2007-08 for which, notice u/s.148 could be issued on or before 31-03-2014. In the case before us, the AO has issued notice u/s.148 of the Act on 26-03-2014. Therefore, it is within the period of six years from the end of relevant assessment year. However, it is clear that assessee has not been served notice u/s.148 of the Act and even the notice by affixture was also served on 04-04-2014. But as rightly pointed out by the Ld.Counsel for the assessee, there is no report of the AO, which contains the names and addresses of the witnesses, who have identified the property. Further, it is also not recorded in the docket order of the assessment records. Therefore, it is not clear as to whether notice by affixture has really been served on assessee. Further, the Hon'ble Punjab Haryana High Court in the case of CIT Vs. Avi-oil India Pvt. Ltd., . 2008 (7) TMI 520 - PUNJAB AND HARYANA HIGH COURT has held that notice should not only be issued but should also have been served on the assessee within the stipulated period and in the absence of a valid notice, the assessment is initiated. Capital gain on transfer of property - considered the sale consideration to be at ₹ 13,44,000/- and after allowing 40% of the sale value as assessee s expenditure towards development, brought the balance of ₹ 8,06,400/- to tax - HELD THAT - Assessee has developed the land and sold the same to the land owners. Therefore, the assessee s contention that - there is no transaction of any transfer by the assessee to the land owners, is to be accepted. Further, both the AO and the CIT(A) have failed to consider the transaction as a whole and failed to allow the cost of acquisition of the land to the assessee while computing the income from the transaction of sale. As rightly pointed out by the Ld.Counsel for the assessee, if the transaction was to be considered as transfer, then the AO and the CIT(A) ought to have taken the transaction of sale dt.15-11-2006 also into consideration and the cost of acquisition should have been allowed and if it was so done, there would be loss and not income from the said transaction. Therefore, the premise of the AO that there is income which has escaped assessment, is incorrect. The reasons recorded for reopening also are clearly erroneous as the AO has recorded that assessee has not filed the return of income. In view of these facts, we are of the opinion that the reassessment is not sustainable. Therefore, on both the grounds, assessee s appeal is liable to be allowed.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Merits of the addition made by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act:

The primary issue pertains to the validity of the notice issued under Section 148 of the Income Tax Act. The assessee argued that the notice dated 26-03-2014 was never served on them. The tracking record indicated that the delivery was unsuccessful due to an insufficient address. The AO's claim that the notice was served by affixture was also challenged, as there was no independent witness to confirm this method of service. The tribunal found that the AO did not make sufficient efforts to ascertain the correct address of the assessee and failed to provide evidence of service by affixture.

The tribunal referred to precedents such as CIT Vs. Avi-oil India Pvt. Ltd. and Anil Kisanlal Marda, emphasizing that a notice must not only be issued but also served within the stipulated period. The tribunal concluded that the absence of a valid notice invalidated the assessment proceedings.

2. Merits of the Addition Made by the AO:

On the merits, the AO had added an income of ?8,06,400/- to the assessee's income, based on the assumption that there was a transfer of property and income earned from it. The AO's assessment was based on an unregistered development agreement and a registered sale deed. The AO held that since the development agreement was unregistered, the title over the property did not pass to the assessee, and thus, the sale consideration of ?13,44,000/- was relevant.

The assessee contended that the land was taken for development under an unregistered agreement, and subsequently, a sale deed was executed to transfer the land in favor of the assessee. The plots were then registered in the name of the landlords/vendors. The assessee argued that there was no exchange of consideration, and thus, no transfer of property occurred. Alternatively, the assessee claimed that if the transaction was considered a sale, the cost of acquisition should have been deducted.

The tribunal found that the AO and CIT(A) failed to consider the transaction as a whole and did not allow the cost of acquisition. The tribunal noted that the land was registered in the assessee's name on 15-11-2006 and re-registered in favor of the landowners on 16-11-2006. This indicated that the assessee had developed the land and sold it back to the landowners, and thus, there was no income from the transaction.

Conclusion:

The tribunal concluded that the reassessment was not sustainable due to the invalidity of the notice under Section 148 and the erroneous premise of the AO regarding the income that allegedly escaped assessment. Consequently, the appeal of the assessee was allowed, and the assessment was set aside. The order was pronounced on 30th August 2019.